Not Everyone is Entitled to a Jury Trial

Ask virtually any U.S. citizen if she has a right to a jury trial in the courts of the United States and the answer will most likely be yes. In most cases, this opinion would not be wrong as the right to a jury trial is specifically stated in the United States Constitution and the Michigan State Constitution. The right to a jury trial, however, does not apply to certain corporate shareholder claims in Michigan.

A shareholder of a Michigan Corporation who does not believe she is being treated fairly may file a lawsuit to establish that those in control of the Corporation have engaged in acts that are “illegal, fraudulent, or willfully unfair and oppressive to the Corporation or to the shareholder.” A lawsuit of this nature is generally referred to as an action for “Shareholder Oppression.” Most cases of this nature involve a shareholder who holds a majority of the stock of the Corporation and therefore has the voting power to technically implement decisions without consultation of minority shareholders. These cases typically first occur during a “honeymoon” period where appropriate meetings and votes are held on a particular topic even if a minority shareholder cannot change the outcome of a particular vote. Over time, the minority shareholder and majority shareholder develop differences in opinions and the majority shareholder will reach a point where corporate formalities may not be diligently followed. Examples of oppression may include termination of the shareholder’s employment with the Corporation, or implementation of corporate decisions without input from minority shareholders.

The Michigan Supreme Court recently held, however, that a shareholder filing a lawsuit for shareholder oppression does not have the right to a jury trial. The court concluded that the Michigan statute governing shareholder oppression claims did not specifically grant the right to a jury trial. The court went on to give reasons why Michigan law and the State Constitution do not afford a right to a jury trial under these circumstances.

Shareholder oppression claims are often considered “business divorces.” The formation of a new business, like a wedding, starts with hope and promise but frequently things will turn sour between participants. Michigan corporate law has statutory requirements and rights built into it for both the Corporation and shareholders. It is prudent for a person who owns more than 50% of a Corporation in Michigan to pay close attention to the statutory requirements so that minority shareholders are treated fairly. This does not mean that decisions need to follow the wishes of a minority shareholder. Rather any minority shareholder should be allowed to express her views even if she can’t control a vote. Ignoring a minority shareholder because you hold majority control is a recipe for conflict.

Conversely, a minority shareholder who may be frustrated by lack of control does not automatically have a cause of action. If the appropriate corporate formalities are followed at each meeting and a majority shareholder controls the vote, a minority shareholder will either have to learn to tolerate the situation or explore departing from the company.

In the situation where majority shareholders are at odds with minority shareholders, it can obviously create a very difficult work environment. Under these circumstances, a shareholder agreement is a valuable tool to all shareholders. At the time that the corporation is formed, shareholders can come up with the terms of departure if things do not go as planned. This agreement can set forth a manner in which shareholders can sell their shares to the Corporation, and a formula for establishing a price. The shareholder agreement frequently will provide satisfactory resolution among shareholders and eliminate the need for non-jury court intervention.